Ouch! Washington state feels pot pinch since Oregon went legal

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BINGEN, Wash. — At an age when most people are eager to retire, 68-year-old Margie Lemberger cleaned out a chunk of her savings and started a business.

The retired pharmacist outfitted her homespun shop along a quiet stretch of the Columbia River Gorge with a second-hand couch and other thrift store finds. She picked up display cases from an old grocery store.

It’s easy to imagine the store’s shelves lined with homemade pies or curios. Instead, they’re crowded with Super Sour Diesel, Dirty Girl, Cherry OG and dozens of other marijuana strains.

At first, Margie’s Pot Shop, tucked off Washington State Route 14 in Bingen, hummed. Hikers dropped in after a day in the woods. Marijuana smokers from Goldendale and White Salmon in Washington and Hood River in Oregon drove to the outpost marked with a yellow and red sign that Lemberger painted herself.

Sales grew for most of last year, peaking at an impressive $172,000 for the month of August, reports The Oregonian. That was before Oregon opened its own recreational marijuana market in October. Now anyone 21 and older can walk into any one of the state’s estimated 333 medical marijuana dispensaries that have opted to serve the recreational market to buy pot.

Overnight, Lemberger’s sales went into freefall. Between October and February, they plunged 50 percent. Lemberger brought in a dart board so budtenders could pass the time.

Towns along the Washington border have felt competition from Oregon’s nascent state-regulated marijuana market more keenly than anywhere else. Revenue in those counties has seen a steep drop since last fall, even as overall Washington pot sales continue to climb.

Consider Klickitat County, home to Margie’s Pot Shop and two other cannabis retailers. The county saw cannabis tax revenues drop 47 percent since October, according to an analysis of Washington sales data by the Oregon Office of Economic Analysis.

In September, marijuana shops in Clark County accounted for 12 percent of all pot sold in Washington — a good share of the sales to Portland’s cannabis enthusiasts. Three months after Oregon began recreational sales, that number dropped to 7 percent, according to the Washington State Economic and Revenue Forecast Council’s recent analysis.

“Night and day,” said Lemberger, describing the impact that Oregon’s new market has had on her business.

Economists in both states say they aren’t surprised.

“We see this all the time,” said Josh Lehner, an economist with the Oregon Office of Economic Analysis who in February wrote a blog post he called “Border Effect, Weed Edition.”

Lehner said Washington’s recreational cannabis sales numbers since last year illustrate how pot is the latest “vice” to succumb to the “border effect” between states, a common phenomenon fueled by tax policy, convenience, selection and price.

For instance, Washington imposes a 37 percent state tax on recreational marijuana, compared to 25 percent in Oregon. (Oregon’s rate will drop later this year when recreational sales shift to the Oregon Liquor Control Commission. New tax rates will range from 17 to 20 percent.) A gram of cannabis costs more, on average, in Washington than it does in Portland, according to Leafly, a popular strain and dispensary review site. The average price of a gram on Oregon’s recreational market is $13.67, compared with $14.68 in Washington, Leafly says.

A price gap between Oregon and Washington is likely to drive cannabis consumers who live or work along the border in search of the best deal.

Mark Kleiman, a public policy expert whose think tank, BOTEC Analysis Corporation, has served as a consultant to Washington on its cannabis program, said the two states should set similar tax rates to discourage interstate trafficking.

Ultimately, states with the lowest taxes, he said, “will flood the rest of the country” with black market pot.

“This is something that the two governors should be talking about hard,” said Kleiman, a professor at New York University’s Marron Institute of Urban Management.

“It’s crazy to have a big tax differential across a short border.”

The two states already have seen the border effect play out with liquor and cigarettes.

Take cigarettes. Since 2010, Oregon has sold more packs of cigarettes than Washington, even though Oregon is home to fewer people and the two states have similar smoking rates, said Lehner. Between July 2014 and June 2015, state economists say, Oregon sold 20 percent more — about 30 million packs — than Washington.

The likely explanation: Washington’s cigarette taxes add up to $3.03 per pack, compared to $1.32 in Oregon.

Same with alcohol. Washington’s move in 2012 to privatize liquor sales drove up prices there by 15 percent to 20 percent, say economists. Liquor stores along the Oregon side of the border have seen a nearly 40 percent spike in sales since then, according to a recent analysis by the Oregon Liquor Control Commission.

It’s too soon to tell how the two states’ regulated cannabis markets will affect each other in the long run, said Steve Lerch, Washington’s chief economist.

Washington’s market has experienced major upheaval in a short span, including the introduction of Oregon’s regulated market, which was untaxed at first. Washington will undergo yet another big shift in July, when its medical and recreational markets will merge.

Despite the fluctuations, Lerch expects Washington’s pot tax revenue to continue to climb to $207 million this year, compared with $110 million the state received last year.

“I still don’t think we have enough information to know how it’s going to shake out in the long term,” he said, “because we keep having things change.”

Oregon’s new market hasn’t walloped all of Washington’s marijuana shops along the border.

On a recent weekday morning, Main Street Marijuana in Vancouver bustled with customers. The shop, owned by two brothers, Ramsey and Adam Hamide, is one of Washington’s top pot sellers.

Adam Hamide said the shop’s foot traffic — about 1,500 to 2,000 customers a day — gives him negotiating power with pot producers to buy larger quantities at lower prices. That translates into cheaper prices for consumers.

He said his shop offers 3.5 grams of marijuana flower, or an eighth of an ounce, for as low as $10. He sells a gram of cannabis extract called “wax” for as low as $20.

“Nobody can match it,” Hamide said. “Nobody in Washington or Oregon.”

Typically, an eighth of pot sells for $20 to $50 in Portland dispensaries. A gram of wax goes for about $20 to $35, Portland shop owners said. Plus, Oregonians can get products in Washington that for now remain off-limits here: marijuana-infused edibles and extracts.

Still, Main Street Marijuana has seen fewer Oregon customers since last fall, Hamide said. Last year, Oregonians made up about half the shop’s business. That’s dropped to about 20 percent, he said.

Monthly sales, which peaked at more than $2 million last September, dropped to $1.3 million in October. Sales figures on 502data.com — a site owned and managed by a Washington marijuana retailer who regularly updates and breaks down the state’s publicly available pot sales data — show that Main Street Marijuana’s sales are down from last year but steadily climbing back up.

(Oregon, by contrast, does not have such detailed publicly available marijuana sales data. The state only began collecting sales taxes on recreational marijuana in January.)

The shop’s prices, said Hamide, have attracted new customers from Clark County and longtime black market consumers.

“Who wouldn’t want a $10 eighth or a $20 gram of wax?” Hamide said. “The black market can’t compete because the (regulated) market has matured.”

Lemberger, for her part, isn’t discouraged by the new market to the south. Instead, she’s considering diversifying. Maybe adding some fishing poles and lures, for instance. She’s also boosted her monthly budget for advertising and is negotiating prices with marijuana producers so she can stay competitive.

Overall, while business has dropped at Margie’s Pot Shop since last fall, February sales improved over the previous month, according to 502data.com. She sold $84,000 worth of pot in February — the most since last November, according to 502data.com.

Worried about the future, Lemberger scaled back her ambition for her shop.

“We just won’t be that big store that makes a lot of money,” she said. “We will just be a local mom-and-pop store.”


Via AP Member Exchange

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